Plumes of mango-flavoured vapour are becoming a common sight and scent in China. The country’s biggest e-cigarette maker, backed by Sequoia Capital China, hopes they become ubiquitous. RLX Technology has raised $1.4bn from a listing in New York.
The sector is an alternative for investors looking for better returns than China’s battered tech stocks can produce.
The listing for Beijing-based RLX priced well above its range at $12 per share, valuing the company at $19bn. Sales have surged despite the pandemic — revenues nearly doubled to Rmb2.2bn ($340m) in the first nine months of last year. It has been profitable since 2019.
US counterpart Juul is beset by lawsuits and regulatory attacks. There are regulatory risks for vaping companies in China too. Watchdogs have started cracking down on sales of e-cigarettes, banning online sales and ads with the aim of discouraging teenagers from using the products. A ban on public vaping is under consideration.
So far, the damage has been minimal. Offline stores selling RLX products have more than offset lost online sales, growing to over 100,000 outlets in 250 cities. Lockdowns have done little to stunt growth. RLX now has over 60 per cent of the local market share.
Investors familiar with the surge in local demand for vaping products are not spooked by the prospect of tighter public health restrictions. Local rival Smoore’s recent listing in Hong Kong has blazed a trail — smokelessly — that RLX has followed. Shares in Smoore have gained over 130 per cent since listing in July and trade at over 100 times forward earnings. RLX is valued at around 38 times the same measure.
The new debutante is better positioned. Smoore has heavy exposure to the saturated US market. RLX’s local focus leaves it with ample room for growth. China has over 300m adult smokers. Yet its vaping market is only nascent, accounting for only around one per cent of smokers, compared to about a third in the US. Expect to walk through burgeoning clouds of fruity fumes the next time you are in China.
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